30 October 2012
Employment Lawyer Harriet Bowtell discusses Employee owner status
The Government has now published its consultation document on implementing employee owner status - that is, the proposal that employees are given shares in return for giving up certain Employment Rights. The consultation runs until 8 November.
A third employment status of ‘employee owner’ would be created in addition to that of employee or a worker. ‘Employee owners’ would receive between £2,000 and £50,000 worth of shares which would be exempt from capital gains tax. This would be in exchange for giving up their Unfair Dismissal rights (although they are still protected from being automatically unfairly dismissed), certain rights to request Flexible Working and training, and statutory Redundancy pay. Employee owners will also need to give longer notice to return from Maternity Leave or adoption leave (16 weeks rather than the current 8).
The Government’s aim, which is part of its wider Employment Law Review, is to “improve the effectiveness and flexibility of the labour market”, i.e. to allay employers’ fears of being taken to an employment tribunal. However, most Employment Lawyers, myself included, have serious concerns that these proposals are introducing means for employers to dismiss employees without a potentially fair reason by the backdoor and further whittling down other employee rights. Removing an individual’s right to request Flexible Working, for example, does not appear to support the aim of increasing flexibility.
Of course there is a balance to be drawn between employee rights and labour flexibility but my concern is that individuals will sign up to employee owner contracts without fully understanding the implications. The Government is seeking views on the appropriate levels of information and guidance to be provided.
The Government’s aim is to give employers more flexibility over the type of Contract they can offer. I understand that it would be optional for existing employees, but an employer would be able to offer an employee owner contract to a new hire on a take it or leave it basis. The employer would be able to include a clause in contracts requiring the employee to surrender their shares when the employee resigned, was dismissed or made redundant. When shares are surrendered, the employer would have to buy back the employee's shares at, "their unrestricted market value". The Government is seeking views on whether ‘in certain circumstances’ an employer should be able to buy back shares at less than market value. This may apply on Dismissal so that an employee owner would not be able to seek compensation from a tribunal for Unfair Dismissal nor receive the full market value of the shares which were meant to compensate them for the loss of this right.
The equality impact assessment of the proposal recognises that Discrimination may occur if businesses offer employee owner contracts to those more likely to exercise the rights they are being denied. The Government considers that ‘although discriminatory behaviour might be encouraged’, this is not a problem as companies would need to show objective and proportionate justification of any indirectly discriminatory use of ‘employee owner’ contracts. If only that were true!
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